Why Did The Stock Market Originally Use Fractions Rather Than Decimals.

 

When I stated teaching math all those years ago, we'd always list the stock market as one of the places in real life that used fractions.  We could pull examples out of the newspaper or off the internet to show that Apple might be 46 3/4 or Pepsi was 123 1/8.  We could have students pick a stock to follow daily and then have them calculate the percent increase or decrease, graph it, just do so many things with the fractions.  Now, even the stock market is listed using decimals. 

Prior to April 9, 2001 when the Securities and Exchange Commission ordered the stock market to change from using fractions to listing everything in decimals.  The stock market is over 200 years old and when it began, it was based on the the Spanish trading system dating back to the 1600's. This system was based on fractions rather than decimals. 

Back in 1792, 24 bankers, brokers, and merchants formed the New York Stock Exchange by signing the Buttonwood Agreement.  Since America was so new, they looked to Europe for a system to model their new exchange on.  After looking at different systems, they decided to base it on the system used by Spain.  

Originally, Spanish traders used gold doubloons either whole or cut into quarters, eighths, or half so that they could use their fingers and not the thumbs to count things so rather than being base ten, it was actually base eight. When the New York Stock Exchange, the eighth of a dollar or 12.5 cents was the smallest unit used for trades but eventually, it was changed to 6.25 cents or one sixteenth of a dollar for large trades to change the spread.  This was done to minimize loses.  Think about it, if you have 100,000 shares and each share does down 1/8th you'd lose that is about $12,500 but if the smallest amount is 6.25 cents per share, the loss is only $6,250.  Since then, they've made the smallest units thirty-secondths and sixty-fourths.

Unfortunately, having the stock market use fractions created some problems because we have a decimal based society.  It made it hard to determine how many shares you could buy if you had $5000 dollars to invest and share ran 43 1/4 per share.  One had to change the fraction based values into decimal values in order to do the actual calculations. 

So in 1997, they signed to Common Cents Stock Pricing Act which required the listing of stock to change from fractions to decimals and the process began in August 2000 when the New York Stock Exchange offered seven stocks in decimal form and by September, they offered 57 stocks in decimal form. The process was completed in 2001. 

This change has been beneficial to the investor because the all price increases were more precise and the losses became smaller. Furthermore, the United States stock market form matched the stock markets in the rest of the world.  So when the stock market changed their listings from fractions to decimals, I lost one of my more useful real life examples.  Let me know what you think, I'd love to hear.  Have a great day.